District defends package for former superintendent, saying it was an incentive to draw top candidates.

A state school performance audit concluded that the Parkland Area School District was overly generous to former Superintendent Louise Donohue by including money for unused sabbatical leave in her severance package.

The district also risked taxpayer money by financing some of its debt with an interest rate management agreement, commonly known as a swap, the audit found.

Except for those two matters, the district performed flawlessly in the audit, which covered March 2009 through April 2012.

Indeed, the criticisms of the Donohue deal and the swaps were offered only as "observations" and were unrelated to the district's overall compliance with state laws, contracts, grant requirements and administrative procedures, according to the executive summary of the report by the Department of Auditor General.

Donohue, who retired in July 2011 after seven years as superintendent, was eligible for a severance payment based on a sabbatical salary of $81,721 to be paid over three years. She was also eligible for an administrative agreement retirement incentive of $28,417 to be paid over two years.

The audit said sabbaticals are a benefit that should not be paid unless used. The district, however, said the money did not fall under the umbrella of a statutory benefit but had been an incentive included in an overall contract package intended to attract the most qualified candidates to oversee one of the state's largest school districts.

On the swaps matter, the district concurred with the state's contention that they are overly risky financial tools that can backfire and cost taxpayers money.

Essentially, swaps are a contract between a school district and an investment bank that speculate on the movement of interest rates and other factors. If a district bets incorrectly on the direction of rates, it can cost dearly.

For example, in 2009, the auditor general found the Bethlehem Area School District's use of two of its 13 swaps had cost taxpayers $10.2 million more than if it had issued a standard fixed-rate bond; and $15 million more than if the district had simply paid interest on its variable-rate note without any swap.

After the Bethlehem findings, the auditor general recommended all 500 school districts cease engaging in swaps.

Parkland said it is unlikely to use them again, and plans to terminate its sole existing swap agreement from 2004 as soon as financially feasible.